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representatives to the preferences of EU citizens. In the U.S. states and the Swiss cantons, this ques-
tion is negatively replied to. Most of them have additional provisions for a direct influence of citizens
on public finances. As the survey in Section 2 indicates, most of the empirical results are indeed ob-
tained for fiscal referenda. Does the EU Constitution need a fiscal referendum as well? In order to be
able to answer that question, two things should be discussed. First, a fiscal referendum must be de-
fined. Following the most common Swiss definition, a fiscal referendum consists of three components
(or a combination of them): If government and parliament propose a spending project that exceeds a
certain spending threshold, an optional or mandatory fiscal referendum is triggered. In addition, spe-
cific fiscal referenda can exist with respect to changes in taxation or with respect to new bonds that
are used to finance the spending project.
Second, it must be discussed how European policy domains should be financed. In Kirchgassner
(1994) it is argued that EU spending should be financed by proportional (indirect) taxes, but not by
(progressive) personal income taxes. The rationale behind this proposal lies in the different control
possibilities which exist on different governmental levels. Any government will act the more in accor-
dance with the preferences of the individuals, the more the citizens are able to control it. At the lower
levels, in smaller jurisdictions, the citizens have better possibilities to force the government to act ac-
cording to their preferences. In this respect, there exists a significant difference between progressive
(direct) and proportional (indirect) taxes. If tax rates can only be changed via changing a law, which
is the usual way in the case of indirect taxes, a relative increase of the government share has to be
decided via the parliamentary process or via a referendum. This ensures a public discussion, and at
least as long as government seeks its re-election, it will hesitate to increase taxes, and it faces difficul-
ties in getting such approved by the parliament, not to mention the general public. Thus, increases of
indirect tax rates are comparatively rare events, even with respect to quantity taxes, whose real yield
is eroded due to inflation. Such proportional taxes leave a relatively small leeway for Leviathan be-
haviour of a government. Progressive direct taxes, on the other hand, create larger revenue not only
whenever private economic activity and - consequently - private income increases, but also as long
as inflation prevails, if there is no corresponding indexation. Thus, there is seldom a need for a
change of the tax law if the government wants to collect higher revenue: It gets it automatically.
Therefore, progressive taxes provide a comparatively wide leeway for a government to behave as a
Leviathan.
This implies that the necessity of control possibilities differs with respect to different taxes. For taxes
whose revenue raises (nearly) automatically there is more need of controllability compared to (indi-
rect) taxes where it is most difficult for politicians to increase the (relative) revenue: Much more con-
trol by the citizens is needed to keep down direct taxes than to restrict indirect, especially general
sales taxes like the VAT. Therefore, at the European level only the revenues from indirect taxes
should be available. We hence propose to fix a rate of a VAT surcharge on national VAT revenue in
the EU Constitution that is equivalent to the revenue the EU now gets from the VAT resource. This
surcharge should already be included in the proposed EU Constitution that is to be decided in the
founding mandatory constitutional referendum according to our proposal. Given that there should be
a mandatory constitutional referendum on each constitutional change, each change of that surcharge
rate has to be decided by citizens in a referendum as well. When there are no constitutional changes
that degrade financial constitutional provisions to mere statutes, no tax referendum is needed. Simi-